An availability guarantee assures the customer of a certain output performance of its machines. The provider is liable if the contract is not fulfilled.
By granting an availability guarantee, you contractually assure the customer of a certain service life for the system or machine that you have sold him. If the downtimes exceed the agreed extent, you undertake to pay a contractual penalty.
An availability guarantee is characterized by the following properties:
- - The supplier shall be liable in the event of non-fulfillment, even if he is not at fault!
- - The consequences of non-compliance with the provisions are agreed in advance!
- - Normal wear and tear in the event of proper and correct use does not release the user from the obligation to guarantee availability!
- - The burden of proof regarding improper use or intentional damage by the customer lies with the supplier.
Why are service managers often skeptical about availability guarantees?
The conditions listed above initially give rise to a few uncertainties for an after-sales department. Firstly, there is the risk of losing the overview. Things can sometimes get hectic in customer service. Service Manager fear not only annoyed customers but also high contractual penalties. Availability guarantees are initially a small risk, especially if they are poorly implemented.
The burden of proof, which lies with the supplier according to the contract, also has a deterrent effect. In practice, it will be very difficult to prove that the customer has acted improperly and failed to fulfill the warranty.
Of course, availability guarantees should not be implemented haphazardly. As with all After-sales measuresstrategic planning is also required here in order to operate profitably. Of course, this planning takes time and some effort if you want to keep an eye on the profitability of the service department. This is also an obstacle to implementation.
Why availability guarantees still make sense:
Making concessions to the customer without necessity that could mean financial losses on your side in the event of an emergency? Why should you do that to yourself? The answer is simple: you can pay for the risk!
For example, if you guarantee an availability of 95%, a contractual penalty is only due if the machine or system is down for 18 days a year. In mechanical engineering, 95% to 98% is often sufficient for customers to be able to reliably plan the utilization of their machines. You should be able to guarantee this. If not, you may have a fundamental problem with your machine and service performance.
If your products are good, your service department is well organized and you plan your project sustainably, availability guarantees offer excellent sales opportunities. Customers are very willing to pay for the security and predictability they gain. You show them that you can rely on your products and your service and that they can do the same.
In addition, it should not be forgotten that in the event of damage, the customer's claims are finally settled by payment of the contractual penalty. Last but not least, this also offers you a certain degree of security, as you know what costs you will incur in the worst-case scenario.
Availability guarantees should be included in the strategic implementation of graduated Service contracts be integrated. In this context, they represent the highest level of warranty that you can offer your customer.
Already standard in some industries!
In some sectors, such as the telecommunications industry, availability guarantees are already standard. Medical technology, which is actually very similar to mechanical engineering in terms of services, should also be mentioned here. The wind energy industry already goes one step further and guarantees the customer a certain amount of electricity output per year. In mechanical engineering, on the other hand, guarantees are usually only concluded by very large customers who are powerful enough to be able to impose them on the supplier. Very few companies market proactively here.
Under what circumstances are availability guarantees feasible?
There are a few basic requirements for using availability guarantees profitably. These conditions should be met in order to avoid getting into legal difficulties or incurring financial losses:
- - The availability of the machine should be objectively and clearly measurable.
- - The machine must be able to provide the performance to be measured without the customer having to make a fundamental contribution.
- - It must be possible to reliably register external influences by the customer (using light barriers, fuse switches etc.) or, ideally, exclude them completely. The latter is hardly possible in reality.
- - Access to the machine must be guaranteed for the supplier in order to be able to ensure fulfillment of the contract through its own efforts.
- - Your service department should have sufficient resources and personnel to be able to intervene quickly in the event of downtime.
How should contractual penalties be defined?
The amount of a contractual penalty should be calculated depending on the deviation from the agreed target and defined as a percentage of the contract price. For example, a penalty of 25% of the contract price per 1% of missing availability can be agreed. The amounts are of course industry-specific. In addition, a maximum amount should be set.
The customer naturally has an interest in a very high contractual penalty, while you are aiming for a low percentage value. Take out your calculator and check which values are profitable for you and think about what you can justify to the customer.
For both contracting parties, there should of course be no interest in the penalty becoming due at all. It should offer the customer the desired security and motivate the supplier to comply with the obligation it has entered into. Therefore, the amount should not be so low that it appears lucrative for the supplier to simply buy his way out of given defects. But it should also not be so high that the customer can benefit from not fulfilling the guarantee.
A well-organized service department can afford it!
Availability guarantees are an important intermediate step on the way to the Service of the future and X-as-a-Service business models.
You may want to work on developing and selling a well-structured service contract portfolio first and become more confident in this area before taking the step towards availability guarantees. However, if your after-sales department is already well structured and you feel relatively confident in your processes, there is really nothing to stop you from offering customers the all-round carefree package and making higher profits as a result.
